5 Tips for Budgeting In Retirement on a Fixed Income

So you’re planning to retire soon? First of all: congratulations! Now, it’s time to ensure that your money outlasts your life and that there’s some left over for your children.

You can do that by setting up, and following, a realistic budget.

Not So Scary

It might be best to offer a trigger warning before even mentioning a budget. Some people think of them as nothing but a series of restrictions that hamper their enjoyment of life.

That’s not how you should view a budget. A budget is actually a liberating mechanism that will enable you to enjoy yourself while also maintaining sound financial responsibility. Think of it as an effort at putting your finances on a diet. It may require some self-discipline, but in the end you’re a better person for it.

Here’s how you can retire on a budget and enjoy life at the same time.

Take a Financial Snapshot

The first thing you want to do is get an understanding of your finances. Before you can determine how much you can spend, you must first know how much you’ll have.

Compile your 401(k) and IRA financial statements as well as your non-retirement related financial documents. Add it all up and get a sum total of what you’ve got.

Keep in mind: You’ll still be receiving additional income in your sunset years. That will come from returns on your financial accounts as well as your Social Security income.

To get a picture of how much you’ll be able to spend, you’ll also have to calculate your anticipated life span. This can be a grim effort, but it’s part of the number-crunching process. If you outlive your money, then you’re going to be somebody’s dependent.

Fortunately, there are plenty of online tools to help you out with this process.

Track Your Spending

Once you begin your employment-free adventure, you’re not only going to have to start following the guidelines put forth in your budget, but you’re more than likely going to need to make some adjustments.

Why? Because situations never turn out in real life as they appear on paper.

It’s likely that you’ll have a higher expense item than you anticipated (note: you’ll almost never have a lower expense than you anticipated you can thank Murphy’s Law for that). When that happens, you’ll need to reassess and redraw your budget.

This is perfectly normal. It’s also likely that you’ll need to revisit your budget on more than one occasion. That’s not unusual, either.

Get the Support of Friends and Family

Obviously, if you have a significant other, you’re going to want to make sure that your spouse is on board with your financial plans. To try to do this as a solo act is a recipe for tension in the relationship.

Bounce ideas off of close friends, associates, and family members. Get their feedback about how you should budget your money. It’s an especially good idea to talk to people who are already retired. After all, they’ve been down this road before.

Consider Making Changes to Suit Your New Life

Perhaps you’re an empty nester. Your children are grown and have left the house. Even worse, they live a couple of thousand miles away and hardly have time to visit.

There is a growing trend towards remodeling projects with old age in mind, and this is all part of practical planning. Incorporating easy-to-use appliances and devices might cost a significant amount later down the line, so you need to analyze both your situation now as well as keeping in mind that your needs will change in 20 years.

Ask yourself: Do you really need those two extra bedrooms in your house? Can you get by if you downsize and keep the money that you earn from the sale of your home (minus taxes and the amount required for the smaller house, of course)?

What other assets can you sell? Do you have a vintage car that will bring in some cash? Do you have a boat that you won’t use any more?

This is the time to liquefy your not-so-liquid assets that you don’t use any more. That way, you’ll have some extra cash on hand.

Be a Savvy Shopper

You’ll have some extra time in your retirement years. Why not use part of it clipping coupons? You could also browse the Sunday circulars in search of the best deals.

Your retirement years are a great time to hone your skills as a consumer. If you’re a smart shopper, you’ll find it’s easier to stay in budget.

Your golden years are just in front of you. Make sure that you spend them the right way by spending your money the right way.

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Anum Yoon is personal finance blogger who started and maintains Current on Currency. You can catch her on Twitter to follow her updates.

Comments

Len, I am fixed-income earner and feels like I haven’t taken care of my retirement fund. I believe that these 5 tips are really effective particularly the “Consider Making Changes to Suit Your New Life.” Though changes are either good or bad, no matter what it is we just have to embrace it and go through it.

I keep reading about downsizing your home and buying a smaller home and pocketing the difference in money, as if the smaller home costs less than your larger one. This is not the case today. Home values have declined in many areas, or at least remained stagnant. I have looked at condos, for example, and any decent ones cost a lot more than we could ever get for our home- even in other states. They seem to be catering to the very wealthy with these new retirement communities as well. I am afraid many of us will be stuck and isolated in our family homes, with children living far away. especially those of us in rural areas and eventually not being able to drive. I know there is a good chance I will die alone and no one will notice for quite some time.

I am a fixed salaried employee at a local company and my only mantra has been to save 30%+ of my monthly income on all different investment instruments. Even if that means not going to the mandatory movie, I make sure that I invest at least 30% of my and my wife’s income for our retirement and my kids’ education. Securing a future is on the top of my priority list right now.

Going on a weekly budget is a more advanced and granular way of managing your finances, especially if you are young. The attraction of instant gratification is something that prevents us from saving a lot and when we plan weekly with a budget, it helps. Automating our expenses such as internet bills is another great way to save money.

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